Private insurer will no longer fund fraud prosecutions

Almost two years after The Texas Tribune and Austin American-Statesman revealed that a private Texas insurer had paid millions to government prosecutors to investigate certain fraud cases, the deal is being scrapped. In its place: a state-funded team.

Thanks to new money and oversight from the Texas Legislature, the state can now pursue workers’ compensation fraud cases without relying on an unusual and much-criticized funding deal between a private insurance company and the Travis County district attorney’s office.

The fix comes nearly two years after The Texas Tribune and the Austin American-Statesman revealed the controversial relationship between Texas Mutual Insurance, the largest provider of workers' compensation insurance in Texas, and government prosecutors in Austin. Under the exclusive funding deal, which stretched back at least to the early 2000s, the giant insurer paid millions to fund a four-person team to investigate and prosecute alleged “crimes committed against the company.”

The joint Tribune/Statesman series sparked widespread criticism and prompted Travis County authorities to adopt changes in an interim contract with Texas Mutual. That deal allowed other insurance companies to have their cases heard while routing all referrals through the Texas Department of Insurance. But Texas Mutual agreed to keep funding the unit until Sept. 1 of this year — just enough time for state lawmakers to come up with a new source of money during the 2017 session.

Now, under a provision quietly tacked onto the budget adopted by the Legislature late last month, the state will fund the prosecutorial unit with a two-year, $675,000 appropriation. The money will come from the maintenance tax collected from workers' compensation insurers.

The legislative fix was the brainchild of Sen. Kirk Watson, D-Austin, who wanted to maintain robust prosecution of workers’ compensation fraud without relying on a single company or creating real or perceived conflicts of interest.

“We’ve come up with a way to properly address fraud, and we’ve come up with a way where it doesn’t look like pay to play, and done it in a transparent way that is consistent with the way fraud prosecutions beyond just workers' comp happen in the rest of the state,” Watson said. “I consider it a big win.”

Travis County District Attorney Margaret Moore said she’s happy her team will continue to play a key role in prosecuting workers’ compensation fraud.

“It seems like an excellent solution, and I commend Sen. Watson for putting it together,” said Moore, who took office in January. “Our goal is that the work continue to get done.”

Under the terms of the original contract, Texas Mutual made the referrals, provided the investigators and directly paid all the bills for the prosecutorial unit. The authority for the arrangement stemmed from Texas Mutual’s history as a state-created entity, but the deal remained even after the company converted to regulated mutual insurance company, owned by policyholders.

Now when a company or individual has reason to suspect workers’ compensation fraud, the complaints are referred to the Texas Department of Insurance’s Division of Workers’ Compensation for an initial investigation. If the division believes the case warrants prosecution, it sends it to the Travis County DA’s workers’ compensation fraud unit.

The last step, made possible by Watson’s action on the state budget, is replacing the private funding with state dollars.

Ryan Brannan, commissioner of workers’ compensation at the Texas Department of Insurance, said he’s working to get a memorandum of understanding in place with the Travis County DA’s office to change the funding source and make the existing team state employees instead of county employees.

He said he’s hoping for a “seamless transition” to a system that will inspire more confidence in the unit’s fraud prosecutions.

“This adds a check into the system and creates some transparency, which I think is always healthy. Anytime you have a neutral third party evaluating potential instances of fraud, and it’s not coming straight from a carrier, you’re going to get better investigations,” Brannan said. “You’re going to get better analysis and hopefully better prosecutions as a result.”

Moore, the district attorney, added: “The point is to do a good job prosecuting workers’ comp fraud, and the Department of Insurance folks assure me that they have been happy with the work the Travis County district attorney’s office has been doing, and the Texas Mutual people tell me the same thing.”

Terry Frakes, Texas Mutual’s senior vice president for public affairs, said the inclusion of state workers’ compensation fraud investigators has made a positive impact on the process and the new arrangement will keep that in place.

“I think it will work,” Frakes said. “I think everybody is committed to seeing that it works.”

Disclosure: Texas Mutual Insurance Company and Margaret Moore have been financial supporters of The Texas Tribune. A complete list of Tribune donors and sponsors is available here.

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